Potential ACA PTC Strategies

TickTock

Full time employment: Posting here.
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Here's where DW and I are re: ACA PTCs

We are draining an inherited IRA this year; this will raise our taxable income and reduce PTCs but not eliminate them as the cliff is suspended for 2025.

We expected this to take us below the cliff (regardless of whether it resumes in 2026), but the lone HSA-compliant ACA plan went away in 2025.

With interest/cap gain distributions from the taxable index stock fund accounts and interest from FI in the taxable account, we expect to be dancing around the cliff in 2026, if it resumes.

So, looking ahead to a possible scenario where we don't have an HSA-compliant ACA plan and the cliff resumes in 2026 - what (if any) good strategies are there? I recall at least one forum member mentioning that, prior to the cliff suspension, they managed ACA income to be compliant every other year. [My search-fu has failed; I haven't been able to locate that post(s).]

My thought is to transfer enough FI $$ to zero-coupon bonds (perhaps STRIPS) to take income safely beneath the cliff and then be above it the next year. Rinse and repeat as necessary. [This would also have the good secondary effect of having the gains taxed at the LTCG rate, provided the bonds are held for >1 year.]

Is this a reasonable strategy? Am I missing other options? [The stock index funds have substantial unrealized capital gains.]
 
I don't try to get too fancy with my FI investments. $100K in a MM fund that earns 5% is just $5K of income in a year, less if you are spending down that $100K over the year. So far this type of thing has fit into my AA as well. It's up to you just how low you need income to be, and how much in divs your index funds throw. I've only had to skip the PTC one year, in which I sold off my Intl Index Fund and moved much of the proceeds to FI and also opened a DAF. The DAF brought my taxable income down (but not MAGI) and means I don't have to allocate yearly funds to charity now. Next year is my final year (10 months) to worry about this stuff.

The only available HSA plan last year was not attractive at all, but this year each of the 3 carriers offered a good combo of premium, ded, and max OOP and I picked the best one. So the HSA may come back for you, but it's good to plan in case it doesn't, especially if the cliff returns.
 
I don't try to get too fancy with my FI investments.
I haven't either. But with the potential for a ~$9-10k PTC loss hanging on $1 over a cliff, I'm looking ahead to see what might be done to manage ACA income.

As a forum member (don't remember who, sorry about that) said - it's about having the most left after paying taxes. No, PTCs aren't taxes per se - I'll modify to say it's about having the most left after everything is taken into account.
 
I don't think there's a silver bullet here. You probably are already aware of things you can do:
  • use an HSA and contribute the max to it
  • don't hold investments that throw off dividends in taxable accounts (ie. fixed income)
  • use tax efficient equity holdings
  • if earning income, contribute to IRA/401K
  • draw from Roth instead of traditional IRA until you reach 65
 
I haven't either. But with the potential for a ~$9-10k PTC loss hanging on $1 over a cliff, I'm looking ahead to see what might be done to manage ACA income.

As a forum member (don't remember who, sorry about that) said - it's about having the most left after paying taxes. No, PTCs aren't taxes per se - I'll modify to say it's about having the most left after everything is taken into account.
Right. When I look at how much (if any) Roth conversion to do, I look at the overall impact of each $1 ($1000 actually) of conversion on my taxes and loss of PTC credits. And the cliff edge was to be feared, and if you are going over you definitely want to set yourself up to not go over the next year(s) if possible.

If you are really close, you have to look at creative options to limit MAGI while not torpedoing your returns, which might be where you are. I've been fortunately not to have been too close, though I could see I was rapidly approaching with the larger distributions on the Intl index fund which wasn't performing as well and I could barely take any foreign tax credit on.
 
It would be hard for me because I like to plan ahead, but I think were I in your shoes I would consider tabling the question until late summer this year. I think there will be a lot more clarity at that time about what form 2026 ACA will take in terms of the provisions that expire this year.

I think you understand that the cliff will resume and the subsidies will decrease on 1/1/2026 unless Congress acts this year.

You probably won't know about whether an HSA plan will be available until late fall if you poke around your state's department of insurance website, or Open Enrollment if you want to be given the information in an understandable format.

The way I would look at it is I would decide if ACA would be my insurance approach in 2026, and then if so, which of the available ACA plans is the best choice for me. In my case that means an HSA plan in 2025 and I hope also one in 2026, but if it's not there I'd probably just go with a Bronze or Silver generic plan from my current insurer (whom I like and have been with for 8 years or so).

In general, if your forced income is pushing you up against the cliff, then yeah, your choices are bunching every other year, or trying to work on reducing your taxable income in any way that makes sense for the rest of your financial situation. If you expect to be "close" in 2026, I would probably look at what sort of options I had to lower my AGI - capital losses, HSA contributions, and traditional IRA contributions are the three most common if they apply to you. A longer term option is switching from active mutual funds to index funds in taxable, but you might have unrealized gains which make that painful or unpalatable.
 
SecondCor521,

Thanks, good points all around. I wanted to bring it up early and see if I'd overlooked something, also to hear from anyone who'd done the same thing prior to the cliff being suspended.

* Capital losses - yes, we're taking the max $3k/year.
* HSA contributions - yes, if available.
* Traditional IRA contributions - not an option for us.
* Taxable funds are already index (we've been indexers for >20 years) and have unrealized gains. In any case, the $ thrown off by the funds are (at current interest rates) considerably less that FI interest on a per-dollar basis.

Looks like if it comes down to it, bunching every other year is the best choice.
 
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